How does a contingent fee agreement work?

A contingency fee agreement is a payment arrangement that allows a plaintiff who has been injured and is seeking legal remedy to obtain legal representation even if they do not have money to pay a lawyer at the beginning of the case. A client does not have to pay a contingency fee up front, agreeing instead to pay an attorney a percentage of the client's award should they win the case. The contingency fee agreement will dictate the circumstances of payment, and how much an attorney is owed. The rules governing lawyers in your state will frequently determine when contingency fees are appropriate.

Contingency Fee Basics

The basic concept of the contingency fee agreement is that the client is out little or no upfront expenses; you as a client do not pay legal fees unless and until you win, and then the lawyer receives a percentage of your recovery as his or her fee. If you lose your case, there is no legal fee at all for the lawyer.

Contingency fee agreements are customarily used for cases wherein a plaintiff is seeking money damages for some sort of injury. Depending on the nature of the case and the damages claimed, lawyers will not always accept a contingency fee arrangement. Some legal claims have limits on how much a plaintiff can recover in damages, in which case an attorney will be hesitant to work on a contingency fee.

For example, even though a worker’s compensation claim involves damages, some state statutes limit damages for that type of claim. Attorneys will be less likely to accept these cases on a contingency fee.

Most states permit contingent fee agreements; however, some state bar organizations have become critical of contingency fee agreements as excessive fees and have worked to place limits on their use. Advocates of contingency fee agreements argue that they provide a motivation for the attorney to obtain the best possible settlement for their client and provide a way for those who could not ordinarily afford to do so, to access the justice system. Visit the state bar website in your state or consult an experienced local attorney to find out if limitations have been placed on the use of contingency fees in your state.

Operating Under a Contingency Fee Agreement

After a contingency fee agreement is reached, the attorney will pay the expenses of the lawsuit. Expenses can include paying filing fees, arranging for payment of depositions, and paying for copies of medical records or reports. If your attorney is successful in obtaining a judgment or settlement on your behalf, the written contingency contract will control how your funds are dispersed. Some contingency fee agreements will operate under a graduated percentage contract.

For example, if a litigation lawyer has to file a lawsuit and go to trial, his or her agreement may provide for a higher percentage because more effort is required for litigation. If the attorney does not have to file a lawsuit, but instead resolves your lawsuit through mediation or another form of alternative dispute resolution, the contingency agreement may provide for a smaller percentage.

Some contingency fee contracts provide for expenses plus a percentage. If you enter a contingency fee agreement and the litigation lawyer won you a $100,000 judgment at jury trial after spending $10,000, he would be able to recoup his expenses off the top, and then distribute the remaining $90,000 in funds accounting for the lawyer’s contingency fees.